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Learning How NOT to Talk Like an Economist

08Nov2011

Written by Jon Zerolnick

OUT OF THE FRYINGPAN - Though I deal with economic issues all day, I am not an economist and I have no formal economic training. That’s one of the reasons that I really like NPR’s Planet Money podcast. Yes, it has a little too much of a free-market bent for my tastes, but it does a very good job of explaining basic economic issues in lay language and, even more important, it is intellectually honest (which you can’t say about some key business media).

Planet Money recently aired a provocative episode called “Will economic growth destroy the planet?”. Their jumping-off point was ostensibly the (purported) trade-off between economic and environmental health, but I found the real lesson in an important insight about how economists think and talk.

Let’s assume that we all agree that economic growth is a good thing. Almost every day, we see some headline or another touting the promise of a government policy or tax incentive or corporate investment to create jobs, or raise revenue, or boost the economy. But how do we actually measure economic growth? At the national level, we generally talk about gross domestic product, or GDP, a measurement of all goods and services the U.S. produces. (At the local level, we might talk about a development project creating jobs and tax revenue.)

But there’s something fishy about the notion of GDP—specifically, whether or not it really measures what we want to be talking about. Planet Money talked to an economist, Herman Daly, who gives the example of why an oil spill is, strictly speaking, good for the economy (given our metric of GDP): “All of the expenditures on cleaning up the oil spill were then added to GDP. Now, see, that’s asymmetric accounting. You’re not counting the negative, and you’re adding in the positive.”

What he means when talking about “not counting the negative” is that, yes, there’s an economic good in an oil spill: we have to buy a bunch of paper towels and Lysol (okay, I’ve never cleaned up an oil spill; it may be more complicated than this), we have to hire people to do the cleaning, we have to rebuild the tanker/drilling platform, etc. Strictly speaking, this is good for the economy.

But there are some fairly obvious costs, too: damaging the environment, killing wildlife and perhaps releasing toxins that will hurt people. Where do these costs show up on the balance sheet and how do they offset the economic goods? They don’t show up—hence the term “asymmetric accounting.”

Here at LAANE, we battle this sort of dominant, entrenched thinking all the time, and we have to remind policy-makers that the measurement that matters isn’t just growth, but what you might call net growth—that is, growth that accurately takes into account not just the economic goods of a policy (or development, etc.), but also the economic ills.

Because these ills actually exist in the world; they’re usually just not counted by economists. Economists have a name for these sorts of uncounted ills, too: externalities.

Take as an example something that I spend a lot of time thinking about: port operations. The Ports of LA and Long Beach are vastly important to the Southern California economy. One out of every seven or so jobs in the region is tied to trade, and trade generates hundreds of millions of dollars for our local economy.

But as environmental justice groups will tell you, there are also costs: port operations generate traffic which impacts neighbors, emit harmful pollutants which kill people, and emit carbon that changes the planet’s climate.

But economists (and often policy-makers) tend not to talk about these things nor include them in their math.

We’ve tried to take this broader economic view and account for costs and benefits, which is a more honest measurement of how a policy will impact us. We all understand that if you build a big factory, there are positives (jobs, taxes), as well as negatives (traffic, pollution). The problem is that economics doesn’t have a ready language or methodology for talking about the negatives, which, frankly, leaves the deck kind of stacked.

I don’t personally know anyone who is against growth per se, but when you’re at a City Council hearing arguing against a development, you’re labeled anti-growth. In reality, though, in these cases we’re really just asking for an honest accounting!

In fact, Planet Money did talk to one economist, Robert Mendelsohn, who tried to do just such an accounting. In a 2009 paper, “Environmental Accounting for Pollution,” Mendelsohn and colleagues, arguing that we have all along mis-valued economic impacts, tried to build the costs of externalities back into the models.

This sort of approach is still in its relative infancy, but the results so far are dispiriting—by which I mean that the approach works, it just yields the depressing finding that many industries do more harm than good.

I’m not concerned with whether or not this industry or that industry is destroying the planet, or with the trade-off between economic and environmental health. Because unless we learn how to talk about this stuff honestly and accurately – unless we learn how to properly price economic impacts – we’re never going to make good policy choices.

And most economists – and, importantly, business reporters – do not talk about this stuff honestly and accurately. (The former usually due to disingenuousness; the latter usually due to ignorance.)

So when you see the next headline or op-ed or study released about how that incinerator, or truck yard, or Wal-Mart is going to aid economic growth, take it with a rather large grain of salt. Because most likely, economists aren’t being honest with you: their discipline doesn’t allow for it.

(Jon Zerolnick is LAANE’s research director with a special focus on the ecology and economics of port trucking; he has authored reports including The Road to Shared Prosperity and Foreclosure on Wheels. This column was posted first at fryingpannews.org) -cw